A curious deal, a dispute and a sacking

What seemed a sweetheart deal given to Sivasankaran might have triggered Mistry sacking

The real reasons for sacking Cyrus Mistry as chairman of Tata Sons are still unknown, but C Sivasankaran, head of the Sivasankaran group of companies, did play a crucial role in the escalating dispute between Mistry and the board of the group’s holding company. Among the many accusations Mistry made in his letter to Tata Sons board members and Tata trustees after his removal as chairman was a loan given by the Tatas to Sivasankaran, which Mistry said, was an abuse of the Tata group's resources to favour one individual. 

Documents reviewed by Business Standard reveal at least three startling facts about the loan: one, Sivasankaran was given preferential allotment in Tata Teleservices at a huge discount to the fair value of the scheme in 2006; two, the Tata group itself bankrolled his investments; and three, he checkmated Tata Sons by dragging it to court on grounds of “oppression” just a couple of days after the Tata Sons board decided to sue him for failing to deposit •694 crore towards meeting the claims raised by Japanese telecom major NTT DoCoMo. The strange coincidence led to concerns in the Mistry camp over the board decision being leaked to him by people close to the Tata camp. 

On the first point, the documents show the preferential allotment to Sivasankaran conferred a special favour and benefit of a whopping Rs 468 crore after he paid the final instalment of Rs 782 crore to get a preferential allotment of 520 million shares of Tata Teleservices in February, 2006. While the Chennai-based entrepreneur converted the warrants to buy 520 million shares at a price of Rs 17 a share (he had paid the first instalment of Rs 102 crore in December 2005), Temasek Holdings was allotted Tata Teleservices share at a price of Rs 26 a share just eight days later. 

The more curious part of the deal is how the Tata Group financed Sivasankaran for his investments in Tata Teleservices. Of the final instalment of Rs 782 crore invested by the Siva group, as much as Rs 650 crore was provided by a loan from Standard Chartered Bank against a guarantee by Tata Sons, and the balance Rs 132 crore was provided by Kalimati Investments, a subsidiary of Tata Steel, a listed entity, as an inter-corporate bridge loan since Sivasankaran was to get a loan from IDFC for that amount, which would come in only in March, 2006. 

It’s not clear why Sivasankaran was given such a sweetheart deal, but he is understood to have argued that his investment in Tata Teleservices was made at a time when the company was in dire need of funds. However, this was disputed by Ratan Tata himself. In an email written to Mistry in October 2013, Tata said: “He (Siva) wanted to invest (in the company) because he believed the telecom sector was fast-growing and he could sell his stake at a sizeable profit.” 

In an interview to this paper, Sivasankaran said he was to get the share at par or Rs 10 a share, but the price was revised to Rs  17 to prevent any awkward situation with Temasek which was paying a higher price at around the same time.  

In November 2008, Japanese firm DoCoMo made an investment of 26 per cent in Tata Teleservices, of which 20 per cent was in the form of an issue of new shares and 6 per cent came from existing shareholders. Sivasankaran was among the existing shareholders who sold 20.74 million of his shares to DoCoMo at Rs 117.81 per share, giving him a profit of Rs 209 crore or a return of 594 per cent in less than three years, by selling 40 per cent of his original stake of 520 million shares.  

When contacted, a Tata Sons spokesperson said Sivasankaran had made an investment commitment much before Temasek and considering the industry was in a growth phase at that time, the investment price was finalised accordingly. “This investment was funded partly by Sivasankaran’s companies through a loan from Standard Chartered Bank for which security of Tata Teleservices shares were offered to the bank. To ensure that, in the event of default on repayment of the loan, the shares of TTSL were not sold to a third party and Tata Sons agreed to an arrangement whereby the bank would sell the shares to Tata Sons. A part of the purchase consideration was funded by another Tata company, for a short period of a few days, on market-linked terms,” the Tata group said.

In 2014, Docomo exercised its option to exit Tata Tele. In terms of the agreement with the selling shareholders, Tata Sons demanded from Sivasankaran his pro-rata share of the amount payable to DoCoMo. 

DoCoMo won a favourable award in June this year and immediately asked the Tatas to pay it $1.17 billion (Rs 8,450 crore).  As the Tatas refused to pay the amount till the RBI’s clearance, Docomo moved courts in the US, UK and Delhi high court to make Tata Sons pay. Tata Sons deposited the entire amount with Delhi High Court on behalf of all shareholders. Tata Sons then asked all other companies to pay it the claim amount. While other Tata group companies and Tata Sons paid, the Sivasankaran group refused to pay its share of Rs  694 crore, the documents show. On September 15 this year, former Tata Sons chairman Cyrus Mistry briefed the board about the Siva group’s refusal to pay up and the board asked him to take legal action against the Siva group. But in a surprise move, the Siva group sent a legal notice on September 19 to Tata Sons and Tata Teleservices alleging oppression and mismanagement of Tata Teleservices. 

The documents also show that apart from Tata Tele investment, the Siva group was paid Rs 600 crore by Tata Teleservices relating to procurement and vendors management. These payments started in 2003 and continued till 2008. Another Rs 330 crore was used by Tata Group Company to buy DDSL, a Sivasankaran group company, at a significant premium in 2004 and later the entire investment was written off. 

When contacted, the Sivasankaran group said the Siva group is a victim, and not a beneficiary in the deal with Tata Teleservices Ltd (TSL). “I suffered a loss of around Rs 3,000 crore in terms of capital and interest in my investment into TSL. I didn't repay Tata Capital loan as we filed for a bankruptcy. Tata Capital wrote off the debt and kept Tata Teleservices shares given as collateral. We have no issues on that and we are not finding any fault with Tata Capital,” he said.

One of the agendas for the crucial October 31 board meeting was the issue of proceeding with legal action against Sivasankaran. But the matter could not be taken up as Mistry was removed from the board. 

On its part, Tata Son’s stated position is that it is pursuing all legal options for recovery of the amount from Sivasankaran. But no such action has been taken so far.

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